Completed acquisition by Stagecoach Group plc of Preston Bus

Affected market: Local bus services

No. ME/4032/09

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 28 May 2009. Full text of decision published 15 June 2009.

Please note that the square brackets indicate figures or text which have been deleted or replaced in ranges at the request of the parties or third parties for reasons of commercial confidentiality.

PARTIES

Stagecoach Group PLC (Stagecoach) is a wholly-owned subsidiary of the Stagecoach Group, an international public transportation group, with operations in the UK, USA and Canada. Stagecoach Northwest - the division responsible for the current transaction - employs around 1,400 staff and operates around 530 buses in Lancashire and Cumbria. Pre-merger Stagecoach operated intra-urban, inter-urban, commercial and tendered bus services in the Preston area.

Preston Bus Limited (PBL) provided tendered and commercial bus services in the Preston area. For the year ending 30 March 2008, PBL's turnover was £11.2 million. PBL was an employee-owned company.

TRANSACTION

On 23 January 2009, Stagecoach, through Stagecoach Bus Holdings Limited, acquired PBL for a consideration of £[  ] million. As a result of the transaction, Stagecoach purchased 127 buses and a depot with capacity for 130 buses, as well as taking on 299 employees. It also agreed to take on the liability of PBL's pension fund, which was in debt at the time of the merger.

PBL's pension fund is managed by West Midlands Passenger Transport (WMPT) and guaranteed by Preston City Council.

JURISDICTION

On 23 January 2009, Stagecoach acquired PBL and the OFT therefore believes that, as a result of the transaction, PBL has ceased to be distinct from Stagecoach for the purposes of the Enterprise Act 2002 (the Act).

The merger was investigated by the OFT of its own volition. The OFT's administrative deadline was 18 May 2009, and the statutory deadline, as extended, is 18 June 2009.

The parties overlapped in the provision of commercially operated intra-urban bus services in Preston.

The parties have a combined share of supply of over 80 per cent, by mileage, of commercially operated intra-urban bus services in the city of Preston, and the 'share of supply' test under 23(2) of the Act is therefore met.

ASSESSMENT

The merger has combined the two largest commercial operators in Preston. Pre-merger, the networks of Stagecoach and PBL overlapped extensively, particularly in north Preston. On approximately 120 of the flows on which they overlapped, the merger parties were the only operators.

Given the extensive overlap of their networks in north Preston, the OFT also considered that the merger parties were each others' most likely competitor on routes where they did not overlap in this area. Although two competitors run a small number of services in the south of Preston and could potentially expand to compete against Stagecoach, the OFT considered that potential competition concerns could not be ruled out as a result of the merger (in particular when account is taken of the fact that a realistic counterfactual to the merger was a third party acquiring PBL's assets and using them to compete against Stagecoach).

Access to depot space and bus stands in good position at the Preston bus station, as well as network ticketing, were examined as potentially significant barriers to entry; the evidence in relation to these points was mixed. Significantly, however, the OFT was unable to identify any operators that would be likely to enter the market in the event of an increase in rise price or decrease in service levels.

As such, the OFT considers that it is or may be the case that the merger has resulted, or may be expected to result, in a substantial lessening of competition in the intra-urban commercial bus market in Preston.

DECISION

This merger will therefore be referred to the Competition Commission under section 22(1) of the Act.

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